CODEL STEVENS DISCUSSES ENERGY POLICY WITH NDRC

UNCLAS SECTION 01 OF 03 BEIJING 016814

SIPDIS

SENSITIVE
SIPDIS

SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT
ACCORDINGLY.

E.O. 12958: N/A
TAGS: PREL ENGR KNNP TRGY CH
SUBJECT: CODEL STEVENS DISCUSSES ENERGY POLICY WITH NDRC
VICE CHAIRMAN CHEN DEMING


SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT
ACCORDINGLY.

Summary
--------------


1. (SBU) CODEL Stevens, accompanied by the Ambassador,
discussed energy policy with new National Development
and Reform Commission (NDRC) Vice Chairman Chen
Deming. Chen emphasized that China intends to
maintain 90 percent energy self-sufficiency by relying
on domestic coal resources and development of hydro,
nuclear and alternative power sources. He outlined
projections for future oil imports and described
policies to limit increases in production and increase
efficiency and cleanliness of passenger cars. The
Senators and Chen discussed areas of potential
bilateral cooperation and Chen noted plans for
upcoming bilateral discussions with USG officials on
energy development. End Summary.


2. (SBU) Over breakfast hosted by NPC Vice Chairman
Sheng Huaren on August 12, incoming NDRC Vice Chairman
Chen Deming made a surprise appearance to outline
China's energy policies and challenges for CODEL
Stevens. Chen, who was appointed to the NDRC in May
after serving as Governor of China's western Shaanxi
Province, described his current portfolio at NDRC as
including strategic planning, system reform and energy
issues. (Note: China does not have an Energy Ministry
and NDRC is charged with coordinating energy policy.
End note.)


3. (SBU) Chen led off the discussion by describing
China's current energy usage and production capacity.
China produces 2.1 billion tons coal equivalent (tce)
of energy and consumes about 2.2 billion tce per year,
exports 45 million metric tons of coal per year and
imports about 130 million metric tons of crude oil on
an annual basis. China is 82 percent reliant on coal
for its current power generation capacity, 14 percent
on hydropower and 4 percent on nuclear power.
Alternative and renewable energy sources such as
solar, wind and geothermal currently total less than
one percent of China's productive capacity. Total
installed power generation capacity is about 500
gigawatts, Chen stated.


4. (SBU) Regarding future energy needs, China's
reliance on coal will remain at about 80 percent, Chen
said. China plans to update equipment in one-half of
current coal-fired power plants to improve efficiency
and reduce pollutants by 2020. China plans to
increase hydro and nuclear productive capacity by 40
gigawatts by 2010. The contribution of renewable
energy sources should increase to 1.5 percent by 2020.
Imports of crude oil will increase slightly in the
coming years, Chen acknowledged, but oil imports will
mainly be directed to strategic reserves and coastal
areas. China will import some LNG for use in coastal
areas, as well, although at current high fuel prices,
crude oil and LNG imports will be delayed until prices
come down.


5. (SBU) China is working to put new technologies to
use in its search for energy supplies, Chen noted.
Chinese companies are cooperating with several
international firms to convert coal to oil through CTL
(coal to liquid) processes. Several Chinese companies
have developed their own CTL technology and are
producing domestically. Chinese companies are
collaborating with foreign firms, among them Dow
Chemical, to transform coal into MTO (methanol to
olefin) or MTP (methanol to polypropylene). Chinese
have successfully developed a domestic technology to
produce MTO.


6. (SBU) Chen described increasing interest on the
part of Chinese farmers and localities in biogas and
ethanol production. Because of safety concerns, China
has not taken full advantage of mixing ethanol with

BEIJING 00016814 002 OF 003


gasoline. Chen said it would take 20 years of trials
to determine whether there are "harmful effects."
These trials are ongoing and subsidized by the
Government. Current trials mix 10 percent ethanol
with gasoline. In China's North, sweet potatoes and
corn are used to produce ethanol, while sugar cane is
used in the South.


7. (SBU) Chen said he had recently returned from
Inner Mongolia where he inspected a major wind farm.
Wind turbines currently in use are the product of
cooperation with Denmark and Spain, but have small
capacity. China hopes to increase cooperation with
the United States in this area. Another area for
potential increased cooperation is in development of
solar technology. China is planning to discuss this
with the U.S. Department of Energy in upcoming
consultations, Chen said.


8. (SBU) Asked by Senator Stevens about estimated oil
import costs, Chen said China's current oil imports
stand at 130 million metric tons per year. Projected
increases in oil imports over the next five years will
nevertheless not see China exceed 150 million metric
tons of crude oil imports per year. Sheng Huaren, who
spent much of his career in China's oil industry,
interjected that China's total crude oil imports eight
years ago were 60 million tons per year. With world
oil imports rising from 3.2 billion metric tons per
year eight years ago to 4.3 billion metric tons today,
China's contribution to increased oil imports over the
past eight years is around eight percent, Sheng
stated.


9. (SBU) Senator Murray asked Chen about development
of nuclear power and China's capacity to handle spent
fuel. Because China's current nuclear power
production is so limited, China hires a company to
handle its nuclear waste. After storage, the waste is
buried deep in a remote area. In the future, as China
increases its nuclear power capacity, this method of
waste disposal will no longer be viable, Chen said.
Regarding nuclear power development, China's current
plan is to introduce third generation (3G) nuclear
technology. The United States and Japan are competing
against France to win the contract. Beijing's
requirement is that the provider be willing to
transfer technology to China.


10. (SBU) Senator Coleman asked about increasing
passenger auto transport and its implications for
energy usage, pollution and transportation
infrastructure. Chen said China currently has over 20
million cars and acknowledged that the number is
increasing rapidly. However, he said that the Central
Government has recently enacted measures to limit
private car purchases and develop public
transportation. By the 2008 Beijing Olympics, all
auto manufacturers will be obliged to comply with EU3
or EU4 emissions standards. The Government has
eliminated subsidized loans for automobile
manufacturers and is promoting the development of
railroads and public transportation. Special
incentives are being provided to cities with
populations of over one million to develop public
transportation infrastructure.


11. (SBU) Production of automobiles decreased in
2005, according to Chen, who stated that growth of
approximately ten percent per year in automobile
production would be desirable. The Government is
encouraging auto manufacturers to develop new, cleaner
technologies. Some of these involve switching to
natural gas at low speeds, solar powered cars and
hybrids. Two Chinese companies have developed hybrid
technology, but the technology is still in the
experimental stage.


12. (SBU) Senator Stevens asked about China's
commitment to hydro power in the wake of Three Gorges
Dam construction and attendant problems. Chen said

BEIJING 00016814 003 OF 003


that China is committed to further developing its rich
hydropower resources, but must take adequate care to
provide for environmental protection. Chen said he
noted that the United States had made extensive
efforts to eliminate dams in a number of areas. He
understands, however, that now new dams are being
constructed in the United States. He said he hopes to
learn more about the U.S. experience with hydropower
in upcoming consultations with USG officials.

PARTICIPANTS
--------------


13. (U) U.S. Participants:
Senator Ted Stevens
Ambassador Clark T. Randt, Jr.
Senator Patty Murray
Senator Thad Cochran
Senator Arlen Specter
Senator Mark Dayton
Senator Lamar Alexander
Senator Norm Coleman
Senator Richard Burr
Senate Staff
Embassy notetaker
Interpreter

Chinese Participants:
NPC Vice Chairman Sheng Huaren
NDRC Vice Chairman Chen Deming
NPC Foreign Affairs Committee Vice Chairman Lu Congmin
NPC Deputy Secretary General Wang Wanbing
NPC Foreign Affairs Committee Director Peng Fang
Chinese Embassy in Washington Counselor Chen Guomin
Notetakers
Interpreter


14. (U) CODEL Stevens did not have the opportunity to
clear this message.
RANDT